Controversial soda taxes foster divide among beverage industry and city officials
Philadelphia and San Francisco are among the cities targeting the popular beverage, infuriating makers of the drink who say they are being unfairly targeted.
For decades soda was a beverage juggernaut, but now the sugary drink is being hit with local taxes that has further expedited a drop in consumption of the popular drink.
A slew of cities have instituted taxes starting in 2005 when Berkeley, California imposed a one-cent-per-ounce tax aimed at sugary soft drinks. Similar taxes have been levied in Philadelphia, San Francisco, Oakland and Cook County, Illinois, which includes Chicago. In June, Seattle's City Council approved a tax on a 7-1 vote following months of debate over the more nuanced aspects of a soda tax.
Soda giants such as PepsiCo, Coca-Cola and Dr Pepper Snapple — for which millions of dollars of revenue are on the line — they are crying foul, calling the taxes a money grab by municipalities unfairly singling out the beverage. If the intent was to push consumers to curtail sugar consumption, they say, other sweet treats such as candy and ice cream would be included.
Brian Kuz, chief marketing officer at Talking Rain Beverage Co, the maker of Sparkling Ice fruit-flavored waters, said while there’s no question obesity is an issue, soda is not the only contributor to the conundrum.
“Sugar is a small part of the problem, along with other fatty foods, an unbalanced diet, and a lack of exercise,” he told Food Dive in an email. “Although some sodas are high in calories and have large amounts of sugar, it’s very random to single this out above all other categories and tax it.”
Cities implementing a tax argue it's necessary to help their communities. Mike Dunn, deputy communications director for Philadelphia, said the city has been plagued by poverty, an inadequate education system and struggling neighborhoods. The city’s soda tax is a way to alleviate these problems.
“The [beverage tax] is imposed on an industry that for decades has profited from lower income communities in a city where one quarter of residents live below the poverty line,” he told Food Dive. “This tax sends some of those profits back into the communities by funding desperately needed programs.”
At the same time, retailers in the area say they are suffering devastating losses from the taxes. In Berkeley, a recent study revealed sales of all sugar-sweetened beverages decreased approximately 9.6% during the first year of the one cent per ounce tax. In Philadelphia, where the city instituted a 1.5 cent per ounce tax on sugar-sweetened beverages, soda giant PepsiCo said it would lay off 80 to 100 workers after sales dropped 40%.
With so much debate over soda taxes, who's right?
Sugar is taxing on consumer health
Jim O’Hara, director of health promotion policy for the Center for Science in the Public Interest, said a soda tax is necessary because of the impact excess sugar consumption has on public health and people who pay insurance — even if they are not guilty of eating too much of the sweetener.
“We know it increases the risk of obesity, heart disease, Type 2 diabetes and tooth decay,” he told Food Dive. “By providing communities resources to address the burdens of these chronic diseases, the tax will just collect the social costs of what the industry has marketed to the consumer.”
In places where soda taxes exist, there’s been a decrease in sugar drink consumption while purchases of healthy beverages have increased, O’Hara said.
A study from the Public Health Institute in Oakland backed up his assessment. Since the Berkeley soda tax was implemented, purchases of sugary drinks declined by 9.6% while consumption of healthier beverages surged by 3.5%.
Nancy Brown, chief executive of the American Heart Association, has urged the beverage industry to take note of the benefits the taxes have on communities and the health of people that live and work in them.
“Spending millions to fight local citizens working tirelessly to improve their community puts the beverage industry on the wrong side of health and history,” she said.
The beverage tax in Philadelphia will help fund much-needed investments in quality pre-K, community schools and the rebuilding of parks, recreation centers and libraries. It also will finance $300 million in borrowing to rebuild parks, recreation centers and libraries. Dunn noted investing in public spaces has been shown to enhance public safety, increase educational opportunities and create jobs and careers in Philadelphia communities.
“Spending millions to fight local citizens working tirelessly to improve their community puts the beverage industry on the wrong side of health and history.”
Chief executive, American Heart Association
Since the implementation of the tax, Philadelphia has created 251 pre-K jobs, 1,870 children have been provided with a quality early education, and the city has launched its first cohort of nine community schools. It’s also in the process of rolling out an initiative that will create hundreds of construction jobs. A large percentage of this funding came from the soda tax.
With eight local U.S. jurisdictions approving taxes on sodas and other sugary beverages, it is likely others will adopt similar taxes, researchers from Harvard University and Tufts University said in a study published this month in the journal Food Policy. Just five years ago, soda tax initiatives were roundly dismissed as colossal failures before any campaigning was done or votes were cast. Now, the taxes are seen as having at least a fair shot of becoming law.
Not going down without a fight
The beverage industry has spent millions of dollars to fight further taxes, and some of their efforts have been successful. In a May election, voters in Santa Fe easily rejected a tax increase on sweetened beverages.
Lauren Kane, a spokeswoman for the American Beverage Association, said the soda tax is the most harmful on the people who can least afford to pay: working families and those living paycheck to paycheck.
“You also have to look at how it impacts small businesses and retailers, and we’re witnessing a lot of fallout in Philadelphia,” she told Food Dive. “These taxes have real consequences for real people. It’s harmed these economic engines of small businesses and communities.”
In Philadelphia, Kane said overall beverage sales at the city's Shop Rite stores have plunged between 10% and 25% since the tax took effect. She said the impact of the tax has a broader impact on retail, too, with a growing number of consumers driving outside of Philadelphia to do their shopping.
“These taxes have real consequences for real people. It’s harmed these economic engines of small businesses and communities.”
Spokeswoman, American Beverage Association
Some businesses opposed to the tax argue the government should not be in a position of influencing consumer choices through a tax. Al Soricelli, chief executive of True Citrus, which manufactures True Lemon and True Lime, said while proponents may tout the revenue generated from the tax as a way to help education or other community efforts, there is no way to ensure the money is being used in the way it was promised.
“If it has been proven that a certain amount of calories or an ingredient is bad for you, then the FDA should regulate it by making manufacturers put warnings on labels or outlawing certain ingredients,” he told Food Dive in an email. Similar tactics have been used on cigarettes and alcohol.
Paying the price
Soda manufacturers, grocery retailers and those involved in the carbonated beverage industry all say they are feeling the impact of the soda tax.
Pepsi stopped distributing two-liter bottles and 12 packs of soda to Philadelphia retailers three months after the city implemented its soda tax. The food and beverage giant also has laid off as many as 100 workers in the area. Philadelphia soft drink distributor Canada Dry Delaware Valley was forced to lay off a fifth of its workforce when business plummeted 45% during the first five weeks of 2017.
A grocer who owns six supermarkets in the city told Bloomberg his sales were down 15% in just over a month’s time. The retailer called the impact “nothing less than devastating.”
"The shift to healthy beverages will not make up for the shortfall in sales from the products targeted for the sugar tax. So financially, no one wins.”
Chief marketing officer, Talking Rain Beverage
Kuz with Talking Rain Beverage said soda has long been used as a way to entice buyers into grocery stores where they can do the rest of their shopping. Retailers sometimes lose money on soda with the hopes that shoppers will spend more elsewhere.
“With a tax comes a slowdown in volume, and therefore a slowdown in profitability,” he said. “It most likely means price increases have to take place in other categories to compensate for this. The shift to healthy beverages will not make up for the shortfall in sales from the products targeted for the sugar tax. So financially, no one wins.”
Next act: Chicago
After a contentious legal battle — which still is not over — the soda tax in Cook County, Illinois went into effect this week. The penny-per-ounce tax, which was passed by the county council in November, was challenged in court by the Illinois Retail Merchants Association and several grocers. Although a circuit court judge ruled against the retailers last week, and the retailers apprealed the decision, the tax officially took effect on Aug. 1.
The tax was controversial from the start, with a tie broken by a vote from the board president. She said at the time the tax was necessary to put the county on a stable financial footing, and it would prevent the county from needing to impose additional taxes in the next few years. The tax was expected to bring in $67.5 million in 2017, and $200.6 million next year.
The retailers filed a lawsuit for the tax to be thrown out because they found it confusing. The tax applies to sugar-sweetened drinks as well as those that are artificially sweetened, both in bottles and cans and soda fountains. However, a drink made by someone is non-taxable. So a Frappucino bought in a grocery store is taxable, while one made by a barista at Starbucks is not.
Implementation of the tax was delayed by a month while a judge sorted out the retailers' complaint. In that month, Cook County Board President Toni Preckwinkle sent layoff notices to 300 county employees. Since the ruling, it is unclear how many will be recalled and when that might happen.
As the tax started to be collected, Chicago-area shoppers were shocked and confused by the prices they were paying for the drinks. Some shoppers have already stopped buying taxable products, while others have made plans to start shopping outside of the county.
It's unclear what comes next for the appeal — or Cook County's coffers, for that matter. Since soda taxes have been shown to reduce consumption — and studies have shown this tax's impact to be rather steep — the question of whether it will solve the Chicago area's budgetary woes will be answered as time goes on. As for retailers, soda manufacturers and public health, the true impact also lies in the future.
— Megan Poinski contributed to this report.